USA v. Petters, et al.

Filing 2784

MEMORANDUM OPINION AND ORDER granting 2710 Ritchie Capital Management, L.L.C.; Ritchie Special Credit Investments, Ltd.; Rhone Holdings II. Ltd.; and Ritchie Capital Management Ltd.'s Motion to Intervene; denying 2714 Ritchie Capital Manage ment, L.L.C.; Ritchie Special Credit Investments, Ltd.; Rhone Holdings II. Ltd.; and Ritchie Capital Management Ltd.'s Motion to Lift Stay; granting 2757 Yorkville Investment I, L.L.C.'s Motion to Intervene; denying 2757 Yorkville Inv estment I, L.L.C.'s Motion to Lift Stay; granting 2766 John R. Stoebner, in his capacity as the Chapter 7 Trustee of Polaroid Corporation, et al., Douglas A. Kelley, in his capacity as the Chapter 11 Trustee of Petters Company Inc., et al., and Randall L. Seaver, in his capacity as the Chapter 7 Trustee of Petters Capital, LLC's Motion to Intervene (Written Opinion). Signed by Judge Ann D. Montgomery on 09/14/2015. (TLU)

UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA
United States of America,
Plaintiff,
MEMORANDUM OPINION
AND ORDER
Civil No. 08-5348 ADM/JSM

v.
Thomas Joseph Petters; Petters Company,
Inc., a/k/a PCI; Petters Group Worldwide, LLC;
Deanna Coleman, a/k/a Deanna Munson;
Robert White; James Wehmhoff; Larry
Reynolds and/or d/b/a Nationwide International
Resources, a/k/a NIR; Michael Catain and/or d/b/a
Enchanted Family Buying Company;
Frank E. Vennes, Jr., and/or d/b/a Metro Gem
Finance, Metro Gem, Inc., Grace Offerings
of Florida, LLC, Metro Property Financing,
LLC, 38 E. Robinson, LLC, 55 E. Pine, LLC,
Orlando Rental Pool, LLC, 100 Pine Street
Property, LLC, Orange Street Tower, LLC,
Cornerstone Rental Pool, LLC, 2 South
Orange Avenue, LLC, Hope Commons, LLC, and
Metro Gold, Inc.;
Defendants,
Douglas A. Kelley,
Receiver,
Gary Hansen,

Liquidating Trustee.
_______________________________________________________________________
Nancy Gertner, Esq., Cambridge, MA, and Patrick H. O’Neill, Jr., Esq., Larson King, LLP, St.
Paul, MN, on behalf of Yorkville Investment I, L.L.C.
George H. Singer, Esq., Lindquist & Vennum LLP, Minneapolis, MN, on behalf of Receiver
Douglas A. Kelley.

Adam A. Gillette, Esq., Fruth, Jamison & Elsass, PLLC, Minneapolis, MN, on behalf of Chapter
7 Trustee John R. Stoebner, Chapter 11 Trustee Douglas A. Kelley, and Chapter 7 Trustee
Randall L. Seaver.
James S. Alexander, Esq., Assistant United States Attorney, Minneapolis, MN, on behalf of
Plaintiff United States of America.
______________________________________________________________________________
I. INTRODUCTION
On August 4, 2015, the undersigned United States District Judge heard oral argument on
the Motion to Intervene [Docket No. 2710] and Motion for Relief from Litigation Stay Against
Thomas J. Petters [Docket No. 2714] filed by Ritchie Capital Management, L.L.C.; Ritchie
Special Credit Investments, Ltd.; Rhone Holdings II, Ltd.; and Ritchie Capital Management
Ltd.’s (collectively, “Ritchie”); the Motion for Relief from Litigation Stay Against Thomas J.
Petters and Motion to Intervene [Docket No. 2757] filed by Yorkville Investment I, L.L.C.
(“Yorkville”); and the Motion to Intervene [Docket No. 2766] filed by John R. Stoebner, in his
capacity as the Chapter 7 Trustee of Polaroid Corporation, et al., Douglas A. Kelley, in his
capacity as the Chapter 11 Trustee of Petters Company Inc., et al., and Randall L. Seaver, in his
capacity as the Chapter 7 Trustee of Petters Capital, LLC (collectively, the “Trustees”).
Ritchie and Yorkville (collectively, the “Ritchie Parties”) seek to intervene for the
limited purpose of allowing relief from the litigation stay in this receivership case to enable them
to obtain a default judgment against Receivership Defendant Thomas J. Petters (“Petters”).
Receiver Douglas A. Kelley (the “Receiver”) and Plaintiff United States of America (the
“Government”) oppose the Ritchie Parties’ requests to lift the litigation stay. The requests to lift
the stay are also opposed by the Trustees of the bankruptcy estates for Polaroid Corporation
(“Polaroid”), Petters Company Inc. (“PCI”), and Petters Capital, LLC (“Petters Capital”), entities

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that had been directly or indirectly owned by Petters. The Trustees seek to intervene for the
limited purpose of objecting to the Ritchie Parties’ motions to lift the stay. The Ritchie Parties
oppose the Trustees’ request to intervene.
For the reasons set forth below, Ritchie’s Motion to Intervene is granted, Ritchie’s
Motion for Relief from the Litigation Stay is denied, Yorkville’s Motion is granted with respect
to the request to intervene and denied with respect to the request to lift the litigation stay, and the
Trustees’ Motion to Intervene is granted.
II. BACKGROUND
A. Ritchie Parties Suffer Losses in Petters’ Ponzi Scheme
From February through May 2008, the Ritchie Parties made a series of loans totaling
$189 million to PCI and Petters Group Worldwide, LLC (“PGW”), entities owned by Petters.
See Promissory Notes [Docket No. 2716, Attach. 2] Exs. A-E. Like many of Petters’ investors
and creditors, the Ritchie Parties suffered severe losses when it was discovered in September
2008 that Petters was operating a $3.8 billion Ponzi scheme.1
B. Receivership and Bankruptcy Estates Created
On October 2, 2008, contemporaneous with the criminal fraud action, the Government
filed this civil action under the Fraud Injunction Statute, 18 U.S.C. § 1345, to freeze and
preserve assets owned by Petters and others. See Compl. [Docket No. 1]. The named
defendants stipulated to a receivership over all of their assets, and the Receiver was appointed to

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As part of his scheme, Petters induced investors to provide funds to purportedly finance
purchases of electronic consumer goods from wholesalers for resale to large retailers. These
electronic goods did not exist. Petters used the investments from later investors to repay earlier
investors their principal, plus an amount Petters represented as profit from the transaction.
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“sue for, collect, receive, take in possession, hold, liquidate, or sell and manage all assets of
Defendants . . . .” Second Am. Order for Entry of Prelim. Inj., Appointment of Receiver, Other
Equitable Relief [Docket No. 127] (“Receivership Order”) at 13. The Receivership Order
includes a stay enjoining creditors from, among other things, “enforcing any lien on any asset of
Defendants, taking or attempting to take possession, custody or control of any asset of
Defendants; or attempting to foreclose, forfeit, alter, or terminate any interest in any asset of
Defendants . . . .” Id. at 19.
The Receiver placed insolvent PCI and PGW into bankruptcy and was appointed Trustee
of those bankruptcy estates. See In re Petters Co., Inc., No. 08-45257 (Bankr. D. Minn.)
(“PCI/PGW Bankruptcy Case”). Among the many other businesses owned directly or indirectly
by Petters were Polaroid and Petters Capital, entities now also in bankruptcy. John R. Stoebner
serves as the Chapter 7 trustee for Polaroid, while Randall L. Seaver serves as the Chapter 7
trustee for Petters Capital. See In re Polaroid Corp., No. 08-46617 (Bankr. D. Minn.) (“Polaroid
Bankruptcy Case”); In re Petters Capital, LLC, No. 09-43847 (Bankr. D. Minn.) (“Petters
Capital Bankruptcy Case”).
C. Petters Convicted
Petters was found guilty by a jury in December 2009 and was sentenced to fifty years in
prison. See United States v. Petters, No. 08-364 (D. Minn.) (“Criminal Case”), Sentencing J.,
April 8, 2010 [Criminal Case Docket No. 400]. Petters’ sentence also included a personal
money judgment of $3,522,880,614.10. Id. Judge Richard H. Kyle, who presided over the
criminal case, declined to order restitution and held that Petters’ victims may seek recovery
through the remission of forfeited assets and the bankruptcy process. See United States v.

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Petters, No. 08-364, 2010 WL 2291486, at *3-5 (D. Minn. June 3, 2010).
D. Government, Receiver, and Trustees Coordinate Recovery for Victims
In August 2010, the Government, Receiver, and Trustees for the PCI and Polaroid
bankruptcy estates entered into a Coordination Agreement to resolve their competing claims to
property that was subject to forfeiture and that belonged to the Receivership and bankruptcy
estates. See Uphoff Decl. [Docket No. 1351] Ex. A (“Coordination Agreement”). The parties to
the Coordination Agreement recognized that a “significant overlap of identity” existed among
the creditors and victims of the Receivership and bankruptcy estates, and that competing
litigation would diminish the recovery for victims and creditors, and would unduly delay the
distribution of assets. Id. at 3. The Coordination Agreement establishes a general plan for the
Government, Receiver, and Trustees to coordinate their efforts to recover and distribute property
belonging to the Receivership and bankruptcy estates. Id. at 4–10. The goal of the collective
process established under the Coordination Agreement is to maximize recovery to victims and
creditors of the fraudulent scheme, minimize Receivership and bankruptcy expenses, and provide
for the fair and orderly distribution of recoveries to victims and creditors through bankruptcy and
remission. See id. at 3–10.
E. Receiver and Trustees’ Claims against JPMorgan Chase & Co.
On December 29, 2010, the Receiver commenced litigation against JPMorgan Chase &
Co. (“JPMC”). See Kelley v. J.P. Morgan Chase & Co., No. 10-cv-4999 (D. Minn.) Compl.
[Docket No. 1]. The litigation includes a claim for the recovery of funds that had been held in
personal investment accounts that Petters had with JPMC. Id. ¶ 17. The investment accounts
had been pledged by Petters as collateral for an increase in a credit line for PGW. Id. ¶ 16. On

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September 30, 2008, approximately on week after federal agents executed a search warrant on
Petters’ offices, JPMC began liquidating more than $20 million from Petters’ investment
accounts. Id. ¶ 17. The Receiver seeks to recover these funds for the benefit of the Receivership
estate. Id.
In addition to the Receiver’s action against JPMC, the Trustees have jointly filed
adversary proceedings against JPMC in bankruptcy court in the PCI/PGW, Polaroid, and Petters
Capital Bankruptcy Cases. See Kelley, Trustee v. JPMorgan Chase & Co., Case Nos. 10-4443,
10-4445, 10-4446 (Bankr. D. Minn). The Trustees seek to recover more than $250 million that
JPMC received in connection with Petters’ acquisition of Polaroid in 2005. The adversary
proceedings were filed jointly because each bankruptcy estate has potential claims to the funds
transferred to JPMC. The Trustees allege that all of the funds Petters used to purchase Polaroid
were derived from the Ponzi scheme or Ponzi scheme investors. The Trustees also seek to
recover funds transferred to JPMC in connection with the repayment of $185 million in loans
that JPMC made to Polaroid immediately after the acquisition. In addition to the joint adversary
proceedings, the PCI/PGW Trustee has brought a separate adversary proceeding against JPMC,
seeking to recover $300,000 in allegedly preferential transfers that JPMC received in connection
with the credit line JPMC issued to PGW. See Kelley, Trustee v. JPMorgan Chase & Co., No.
10-4446 (Bankr. D. Minn).
Some of the claims in the Trustees’ actions against JPMC are also at issue in the
Receiver’s action. As a result, the parties to the Receiver’s action have stipulated to a stay of
that action pending resolution of the Trustee’s litigation in bankruptcy court.

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F. Ritchie Parties’ Claims Against JPMC and Other Third Parties
The Ritchie Parties have also filed a suit against JPMC. See Ritchie Capital Mgmt.,
L.L.C. v. JPMorgan Chase & Co., No. 14-cv-4786 (D. Minn.). The action is one of seven
lawsuits that the Ritchie Parties have filed against third parties whom the Ritchie Parties allege
share responsibility for losses the Ritchie Parties sustained as a result of their loans to Petters.2
Among the allegations in each of the seven actions, the Ritchie Parties allege claims for aiding
and abetting fraudulent inducement and civil conspiracy to commit fraudulent inducement.
The Ritchie Parties’ suit against JPMC was filed in January 2014 and seeks to recover
from JPMC the funds that the Ritchie Parties advanced to PCI. See generally Jorissen Decl.
[Docket No. 2775] Ex. C (Complaint in Ritchie Capital Mgmt., L.L.C. v. JPMorgan Chase &
Co., No. 14-cv-4786 (D. Minn.)). The Ritchie Parties allege that their funds were used to repay
JPMC for the Polaroid loan. See id. ¶¶ 5, 7–11, 177. They also allege that the assets in Petters’
investment account that were liquidated by JPMC on or after September 30, 2008 were assets
that the Ritchie Parties had loaned to Petters. See id. ¶¶ 291, 295, 298, 302.
The Ritchie Parties’ suit against JPMC was originally filed in New York state court,

2

The Ritchie Parties’ other actions, most of which have been dismissed or stayed,
include: Ritchie Capital Mgmt., L.L.C. v. Costco Wholesale Corp., No. 14-cv-4819 (S.D.N.Y.)
(pending); Ritchie Capital Mgmt., L.L.C. v. U.S. Bank, N.A., No. 15-2092 (D. Minn.)
(dismissed based on statute of limitations and failure to state a claim); Ritchie Capital Mgmt.,
L.L.C. v. Gen. Elec. Capital Corp., No. 14-cv-8623 (S.D.N.Y.) (dismissed for failure to state
claim); Ritchie Capital Mgmt., L.L.C. v. Fredrickson & Byron, P.A., No. 1-14-2067, 2015 WL
1445681 (Ill. Ct. App. March 27, 2015) (affirming dismissal of complaint); Ritchie Capital
Mgmt., L.L.C. v. Opportunity Finance, L.L.C., No. 27-CV-13-17424, 2015 WL 787747 (Minn.
Dist. Ct. Jan 15, 2015) (holding complaint subject to automatic stay under Bankruptcy Code
because claims alleged by Ritchie are derivative of claims alleged by PCI Bankruptcy Trustee);
Ritchie Capital Mgmt., L.L.C. v. BMO Harris Bank, N.A., No. 15-cv-1876 (D. Minn.) (pending).
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removed to federal court, and then transferred sua sponte to this district, where it was assigned to
the Honorable Donovan W. Frank. JPMC moved to refer the action to bankruptcy court based
on the ongoing Petters-related bankruptcy proceedings, and the Trustees moved to intervene for
the purpose of joining JPMC’s motion. Judge Frank granted the Trustees’ request to intervene,
holding that “[t]he Trustees have a direct, substantial, and legally protectable interest in the
claims being asserted and litigated by [the Ritchie Parties] because the parties are at least
partially seeking recovery of the same funds. . . . It may be that the funds JPMorgan received
will be recovered by one party at the expense of another.” Ritchie Capital Mgmt., L.L.C. v.
JPMorgan Chase &Co., Civ. No. 14-4786 (D. Minn.) [Docket No. 157] (“DWF Order”). Judge
Frank also referred the case to bankruptcy court based on the “interest in uniform administration
of all matters that implicate the Petters related bankruptcies.” Id. at 14. The case remains
pending in the bankruptcy court of this district.
G. Ritchie Parties’ Lawsuit Against Petters
In addition to the Ritchie Parties’ litigation against third parties, the Ritchie Parties
served, but did not file, a complaint against Petters on September 18, 2014 in Minnesota state
court, asserting claims for fraudulent inducement and breach of contract (the “Petters Action”).
The complaint was served to toll the statute of limitations.
H. Lift Stay Motion
The Ritchie Parties now move for relief from the litigation stay in the Receivership for
the purpose of obtaining a default judgment against Petters in the Petters Action. The Ritchie
Parties contend they will not use the judgment to obtain Receivership assets. Instead, they seek
the judgment only to establish essential elements of the Ritchie Parties’ claims against third

8

parties for aiding and abetting Petters’ fraud. The Ritchie Parties contend that proving these
causes of action require them to establish that Petters fraudulently induced the Ritchie Parties to
make the loans, and then further prove that the third party defendants materially assisted with
that fraud. Thus, the Ritchie Parties argue that a default judgment establishing that Petters
fraudulently induced the Ritchie Parties is essential to their claims against third parties.
Additionally, the Ritchie Parties’ lawsuits against some of the third parties include fraudulent
transfer claims. The Ritchie Parties contend that to prove those claims they must establish that
they were creditors of Petters when the transfers were made. Therefore, the Ritchie Parties argue
that a default judgment against Petters is necessary to establish the elements of these claims.
The Ritchie Parties further argue that because they would use a default judgment against Petters
solely for the purpose of pursuing claims against third parties, the Receivership will not be
impacted.
The Receiver and Government oppose the Ritchie Parties’ request to lift the stay. They
argue that the Ritchie Parties’ stated purpose in lifting the stay will interfere with receivership
claims and assets because the Ritchie Parties are seeking to recover the same funds from JPMC
as those sought by the Receiver and the Trustees. The Receiver and Government argue that the
interfering litigation, and the concomitant increased expense of monitoring the Ritchie Parties’
efforts to secure the Receiver’s sources of recovery for themselves, will negatively impact the
Receivership. Additionally, the Receiver and Government contend that the purpose behind the
Ritchie Parties’ request to lift the stay undermines the Receivership goals of maximizing the
recovery of assets for distribution to victims of the Petters fraud scheme in a fair and orderly
process.

9

The Trustees similarly argue that the Ritchie Parties’ lawsuit against JPMC interferes
with their claims against JPMC in the bankruptcy proceedings. The Trustees contend that the
Ritchie Parties are attempting to bypass the collective process established in the Receivership
and bankruptcy cases, and to obtain recovery for the Ritchie Parties’ sole benefit to the exclusion
of all other victims and creditors.
III. DISCUSSION
A. Intervention
1. The Ritchie Parties
No party has opposed the Ritchie Parties’ requests to intervene for the purpose of lifting
the litigation stay, and this Court has granted similar, unopposed requests in the past. See, e.g.,
Docket Nos. 143, 1762, 2187, 2532, 2598. Therefore, the Ritchie Parties will be allowed to
intervene for the limited purpose of seeking relief from the litigation stay.
2. Bankruptcy Trustees
The Trustees move to intervene as a matter of right under Federal Rule of Civil
Procedure 24(a)(2) and for permissive intervention under Federal Rule of Civil Procedure 24(b).
The Trustees argue that they are entitled to intervene because Ritchie’s Parties’ proceedings
against Petters have a potentially adverse effect on the bankruptcy proceedings. The Ritchie
Parties oppose the Trustees’ intervention, arguing the Trustees’ interests will not be impaired
because they can enforce their rights in bankruptcy court.
A party seeking intervention as a matter of right under Rule 24(a)(2) must establish that:
“(1) it has a recognized interest in the subject matter of the litigation; (2) the interest might be
impaired by the disposition of the case; and (3) the interest will not be adequately protected by

10

the existing parties.” S. D. ex rel Barnett v. U.S. Dep’t of Interior, 317 F.3d 783, 785 (8th Cir.
2003).3
All three elements are satisfied here. First, the Trustees have a recognized interest in the
subject matter of this litigation because the Ritchie Parties seek to use a judgment against Petters
to pursue recovery of the same transfers that the Trustees are seeking to recover from JPMC.
Second, the Trustees’ interest in the JPMC transfers might be impaired by the disposition of the
proceedings here because, as Judge Frank has held, “[i]t may be that the funds [JPMC] received
will be recovered by one party at the expense of the other.” DWF Order at 16. Third, the
Trustees’ interests are not adequately protected by other parties because the Trustees are the only
parties who can represent the interests of their respective bankruptcy estates in these
proceedings. Accordingly, the Trustees will be allowed to intervene for the limited purposes
stated in their Motions.
B. Relief From Stay
A court’s power to stay the litigation of actions that compete with a receivership estate
“falls within the court's inherent power to prevent interference with the administration of th[e]
estate.” SEC v. Credit Bancorp., Ltd., 93 F. Supp. 2d 475, 477 (S.D.N.Y. 2000). “The
preservation of the receivership estate is paramount.” S.E.C. v. Pittsford Capital Income
Partners, L.L.C., No. 06-6353, 2007 WL 61096, at *2 (W.D.N.Y. Jan. 5, 2007).
1. Wencke Factors
In determining whether to grant relief from the stay in a receivership case, a court

3

A motion to intervene as a matter of right must also be timely. Fed. R. Civ. P. 24(a).
The timeliness of the Trustees’ Motion to Intervene has not been challenged, and the Court finds
that it is timely.
11

considers the following factors: “(1) whether refusing to lift the stay genuinely preserves the
status quo or whether the [movant] will suffer substantial injury if not permitted to proceed; (2)
the time in the course of the receivership at which the motion for relief from the stay is made;
and (3) the merit of the [movant’s] underlying claim.” S.E.C. v. Wencke, 742 F.2d 1230, 1231
(9th Cir. 1984) (“Wencke II”) (citing S.E.C. v. Wencke, 622 F.2d 1363, 1373 (9th Cir. 1980)
(“Wencke I”)). “The test simply requires the district court to balance the interests of the
Receiver and the moving party . . . . [T]he interests of the Receiver are very broad and include
not only protection of the receivership res, but also protection of defrauded investors and
considerations of judicial economy.” United States v. Acorn Tech. Fund, L.P., 429 F.3d 438,
443 (3d Cir. 2005) (internal quotation marks omitted, alterations in original).
a. Status Quo or Substantial Injury
The Ritchie Parties argue that maintaining the stay will increase the expense and
litigation risk in their lawsuits against third parties. The Ritchie Parties contend that without a
default judgment against Petters, they will be forced to incur significant time and expense in
assembling the evidence and preparing the arguments necessary to prove that Petters
fraudulently induced the loans from the Ritchie Parties.
The Court finds that the Ritchie Parties will suffer little, if any, prejudice by preserving
the stay. The Ritchie Parties’ loans are documented through promissory notes and should not be
difficult to prove. Similarly, Petters’ criminal conviction of a multi-billion dollar fraud scheme
is easily subject to proof. See Ritchie Capital Mgmt., L.L.C. v. Stoebner, 779 F.3d 857, 859 (8th
Cir. 2015) (“The specifics of Petters’s Ponzi scheme . . . have been described in detail in several
of this court’s other opinions.”). Thus, the injury, if any, to the Ritchie Parties is not substantial.

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The Ritchie Parties further argue that lifting the stay will not harm the Receivership in
any way because: (1) the Ritchie Parties will not use the default judgment against Petters to
obtain Receivership assets, and (2) their lawsuit against JPMC does not interfere with the
Receiver and Trustees’ claims against JPMC. The Ritchie Parties contend their suit against
JPMC seeks the recovery of different transfers than those sought to be recovered by the Receiver
and Trustees. This argument lacks merit. The Ritchie Parties’ lawsuit against JPMC interferes
with the Receiver’s action because both seek to recover funds that JPMC seized from Petters’
investment accounts on September 30, 2008. See Kelley v. J.P. Morgan Chase & Co., No. 10cv-4999 (D. Minn.) Compl. [Docket No. 1] ¶¶ 114, 119, 123 127 (seeking to recover “for the
benefit of the Receivership . . . approximately $25 million in cash and securities that was held in
Petters’ investment accounts at JPMC” and liquidated by JPMC beginning September 30, 2008);
Ritchie Capital Mgmt., L.L.C. v. J.P. Morgan Chase & Co., Case No. 14-cv-4786 (D. Minn.)
(alleging “JPMorgan was . . . enriched, at Ritchie’s expense, as a result of . . . the approximately
$18 million of Petters’ assets that JPMorgan obtained after September 30, 2008 by enforcing its
security interests against Petters’ assets.”). Thus, the Ritchie Parties are seeking to recover for
themselves funds from JPMC which are the same funds the Receiver is seeking to recover for the
benefit of all victims. The same holds true for the Trustee’s claims against JPMC. As Judge
Frank has already determined, the Ritchie Parties and the Trustees “are at least partially seeking
recovery of the same funds.” DWF Order 16.
This interference threatens to harm the Receivership because “[i]t may be that funds JP
Morgan received will be recovered by one party at the expense of the other as the proceedings
move forward.” Id. Moreover, increased Receivership costs will be needed to monitor the

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Ritchie Parties’ attempts to recover from the same sources as the Receiver. The Ritchie Parties
contend that its litigation against JPMC cannot interfere with the Receiver’s claims because
those claims are stayed. However, the Receiver must still expend the resources attendant to
monitoring the litigation to ensure that the Ritchie Parties’ recovery is not at the expense of the
Receiver’s.
The Ritchie Parties additionally argue that the stay in the Receivership will not alleviate
the interference caused by their litigation because they will proceed to litigate against JPMC
whether or not they have a default judgment against Petters. Thus, the Ritchie Parties argue that
the proper way for the Receiver and Trustees to address concerns about interference is not to
continue the stay here, but to instead seek a stay of Ritchie and Yorkville’s suit against JPMC.
However, lifting the stay in the Receivership to allow the Ritchie Parties to seek a default
judgment against Petters would disrupt the status quo by fueling the Ritchie Parties’ litigation
which threatens to deplete Receivership assets. Lifting the stay at this time thus endangers the
“fundamental purpose of establishing a Receivership,” which is “to protect the estate property
and ultimately return that property to the proper parties.” Pittsford Capital, 2007 WL 61096, at
*2.
The Ritchie Parties further contend that the concerns related to the Ritchie Parties’
lawsuit should not drive the Court’s decision over whether to lift the stay, because it is only one
of several actions that the Ritchie Parties has filed against third parties. However, many of those
actions have now been dismissed. See infra note 2.
Taking into account all of the above considerations, the first Wencke factor weighs in
favor of the Receiver because the litigation stay maintains the status quo, preserves Receivership

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assets, and does not substantially harm the Ritchie Parties.
b. Stage of the Receivership
The Ritchie Parties argue that this factor weighs in favor of lifting the litigation stay
because the stay has been in place for nearly seven years and the Receiver has had sufficient
time to marshal and untangle the receivership assets. The Ritchie Parties contend that denial of
relief from the litigation stay at this late stage in the Receivership would be tantamount to a
permanent, rather than temporary, litigation stay and would deprive them of their ability to
litigate against Petters.
“The second Wencke prong is inherently case-specific, and of course, merely one of three
linked considerations.” Acorn Tech., 429 F.3d at 450. There is no presumptive cut-off date after
which a stay should be presumptively lifted, and courts focus on the stage, rather than the age, of
the receivership when determining whether to lift the stay. Id. For example, the court’s decision
in Wencke II to lift the stay over a seven-year-old receivership was based on the fact that the
receiver was prepared to distribute the estate assets, which indicated that no additional time was
needed to disentangle the estate. Wencke II at 1232.
Without question, the Receivership here is aging, having been established nearly seven
years ago. However, at no time has this large and extraordinarily complex Receivership been
dormant. Throughout the duration of the Receivership, the Receiver has been actively
marshaling, managing, and monetizing Receivership assets as well as pursuing litigation to
recover funds from Ponzi scheme recipients. The Court monitors the Receiver’s progress and
activity through bi-monthly status reports filed by the Receiver. As the status reports show,
some issues remain unresolved, including in the Receiver’s lawsuits against JPMC as well as

15

other entities and individuals. See generally Forty-Second Status Report, Sept. 8, 2015 [Docket
No. 2783]. Thus, although the Receiver’s work is nearing completion, continuing the stay is
necessary to protect and preserve Receivership assets until those issues are resolved. See, S.E.C.
v. Universal Fin., 760 F.2d 1034, 1039 (9th Cir. 1985) (holding unresolved factual and legal
issues in four-year-old receivership justified continuation of stay); see also, Acorn, 429 F.3d 450
(continuing stay in three-year-old receivership because “the alleged fraud encompassed many
individuals and companies.”); Pittsford Capital, 2007 WL 61096, at *2 (“The preservation of the
receivership estate is paramount.”). Moreover, nothing in the stay precludes the Ritchie Parties
from taking the necessary actions to preserve the statute of limitations on its claims against
Petters. Thus, the stay does not permanently deprive the Ritchie Parties of their ability to pursue
their claims against Petters.
c. Merits of Underlying Claim
In considering this prong, the Court assumes that the Ritchie Parties have a colorable
claim against Petters. However, the overall balance of the Wencke factors favors maintaining
the litigation stay at this time.
2. Comparison to Liquidating Trustee
In addition to their arguments under the Wencke standard, the Ritchie Parties contend
that their request to lift the litigation stay is indistinguishable from the relief requested and
granted to Barry E. Mukamal, Liquidating Trustee of the Palm Beach Finance Partners
Liquidating Trust and the Palm Beach Finance II Liquidating Trust. See Order, Feb. 25, 2014
[Docket No. 2598]. In February 2014, this Court granted Trustee Mukamal’s unopposed motion
seeking relief from the litigation stay for the purposes of obtaining a default judgment against

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Receivership Defendants Michael Catain and Enchanted Family Buying Company. Id.
Material distinctions exist between the Ritchie Parties and Trustee Mukamal. Trustee
Mukamal was appointed under a Chapter 11 bankruptcy joint plan of liquidation that was
confirmed by the bankruptcy court for the Southern District of Florida. See Ex. 1 Mem. Law
Supp. [Docket No. 2592] ¶ 6. Funds recovered by Mukamal in his role as liquidating trustee will
be distributed to creditors in accordance with that court-approved liquidation plan. The
bankruptcy cases remain open and the bankruptcy court retains jurisdiction over the liquidation
plan until the distribution process has been completed. See In re Palm Beach Fin. Partners, L.P.,
No. 09-36379 (Bankr. S.D. Fla.) (“Palm Beach Bankruptcy”) [Palm Beach Bankruptcy Docket
No. 444] ¶ 30. Furthermore, Trustee Mukamal has committed not to interfere with the claims of
the Receiver or the Trustee, whereas the Ritchie Parties have not provided the same assurances.
Therefore, sufficient bases exist for treating the Ritchie Parties differently than Trustee
Mukamal.
IV. CONCLUSION
Based on the foregoing, and all the files, records and proceedings herein, IT IS
HEREBY ORDERED that:
1.

Ritchie Capital Management, L.L.C.; Ritchie Special Credit Investments, Ltd.;
Rhone Holdings II. Ltd.; and Ritchie Capital Management Ltd.’s Motion to
Intervene [Docket No. 2710] is GRANTED;

2.

Ritchie Capital Management, L.L.C.; Ritchie Special Credit Investments, Ltd.;
Rhone Holdings II. Ltd.; and Ritchie Capital Management Ltd.’s Motion for
Relief from Litigation Stay Against Thomas J. Petters [Docket No. 2714] is
DENIED;

3.

Yorkville Investment I, L.L.C.’s Motion for Relief from Litigation Stay Against
Thomas J. Petters and Motion to Intervene [Docket No. 2757] is GRANTED IN
PART and DENIED IN PART as follows: the Motion is granted as to the
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request to intervene and is denied as to the request for relief from the litigation
stay; and
4.

John R. Stoebner, in his capacity as the Chapter 7 Trustee of Polaroid
Corporation, et al., Douglas A. Kelley, in his capacity as the Chapter 11 Trustee
of Petters Company Inc., et al., and Randall L. Seaver, in his capacity as the
Chapter 7 Trustee of Petters Capital, LLC’s Motion to Intervene [Docket No.
2766] is GRANTED.
BY THE COURT:

s/Ann D. Montgomery
ANN D. MONTGOMERY
U.S. DISTRICT JUDGE
Dated: September 14, 2015.

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